Thursday, January 31, 2008

8% Jobless Rate Good? In Germany It's 15-Yr. Low

Jan. 31 (Bloomberg) -- Germany's unemployment rate fell to the lowest level in 15 years in January. The jobless rate, adjusted for seasonal swings, dropped to 8.1%, the Federal Labor Agency in Nuremberg said today. Comment: We haven't had an unemployment rate in the U.S. above 8% in almost a quarter century, since December of 1983 (see chart above, click to enlarge), following the longest post-WWII recession in U.S. history (16 months).

I agree that the latest labor report does confirm that the US labor force participation rate is 66% as you cite and I will trust your data on the German labor force participation rate. However, that does not imply anything!

The lower labor force participation rate is almost certinaly due to the fact that more women are stay at home moms in US than in Germany.

The point is an unemployed worker is defined as one who has actually looked for a job in the last 4 weeks. I am sure it is a similar definition in Germany.

I congratulate Germany on getting more women into the work force, but that is more of a social criticism of the US than anything else.

As well you might, machiavelli999. If one applies the BLS definition of "the civiliannoninstitutional population 16 years of age and over" as the "workforce" to the German Federal Employment Office's numbers, the comparable German rate is 62%. Oddly enough, that German Federal Employment Office seems to feel that the unemployment rate was 10.8% in '06.

Interesting gymnastic exhibitions here. I give this one a 3.6 with no style points.

The rebuttal will be that the German apple must be evaluated under different rules than the American apple because.... well, because the phony story won't hold up unless you do.

Incentives matter. Germany has higher income tax rates and a higher cost of living than the U.S.

I read several months ago in the WSJ that a woman's salary is taxed at her husband's marginal tax rate in the U.S. This would be a powerful disincentive for female participation in the workforce. I am a Canadian and would appreciate if you could confirm this for me.

Canada also has higher female participation in the workforce than the U.S. as well as higher personal income tax rates. Tax free day was in July at one point under PM Martin and is now back in June.

A husband and wife who file a joint tax return in the U.S. have their wages combined and treated as one income.

From this perspective, you can't really say one person's income is taxed at the other's marginal rate.

The only way you could say this was if the man was working before the woman, then the woman's income is added to that of the man and therefore the woman's income is taxed at the highest marginal rate of the combined income.

"So if a couple has T.I. of $70,000 with just the man working and the wife gets a job making $30,000, her entire income would be taxed at the 25% rate."

In that case, when you add in 7.6% Social Security, and 4% state and local income taxes that amounts to 36.6% in income taxes. Add in the cost of commuting, parking, and other work-related expenses and the incentive to work quickly disappears. That’s one of the reasons so many people work “under the table.”

So if a couple has T.I. of $70,000 with just the man working and the wife gets a job making $30,000, her entire income would be taxed at the 25% rate.

That would be true...if the couple received their entire paycheck in one lump sum at the beginning of the year. Otherwise, bi-weekly, weekly, or monthly paychecks smooothe some of that inequity in marginal rates.

I like your blog, but I think it's important for you to explain to readers that under former President Bill Clinton's watch, the methodology for calculating the unemployment rate changed drastically.

First, Clinton changed the sample universe, lowering significantly the number of folks living in cities included in the sample. Doing so under-reported unemployment by minorities in the inner-cities, thus lowering the unemployment rate. In short, Clinton lowered the numerator of the unemployment rate by changing the way the numerator is calculated.

Another change made under Clinton's watch was to eliminate the pool of 'discouraged workers' from the total pool of 'employable people.' The effect this change had on the unemployment rate was and still is quite large. Changing the denominator of the unemployment rate in this manner radically lowered the unemployment rate by about seven percentage points, from 11% to 5%.

Again, I really like your blog. But I do think it is important to note how methodological changes have impacted the unemployment rate over the years.

An article was recently written about germany bailing out businesses instead of finance. This to keep the unemployment rate down. However, the article, written in August, showed quite clearly that if they did not have a boost of industry in the next year or so, if the machines continued to stay silent, they will face worst economic situations than America is today.